“Technology, Distribution and the Rate of Profit in the US Economy: Understanding the Current Crisis”: Deepankar Basu and Ramaa Vasudevan
Abstract: This paper offers a synoptic account of the state of the debate within Marxist scholars regarding the current structural crisis of capitalism, identifies two broad streams within the literature dealing, in turn, with aggregate demand and profitability problems, and proceeds to concentrate on an analysis of issues surrounding the profitability problem in two steps. First, evidence on profitability trends for the Nonfarm Nonfinancial Corporate Business, the Nonfinancial Corporate Business and the Corporate Business sectors in post-War U.S. are summarized. A broad range of profit rate measures are covered and data from both the U.S. Bureau of Economic Analysis (NIPA and Fixed Asset Tables) and the Federal Reserve (Flow of Funds Account) are used. Second, the underlying drivers of profitability, in terms of technology and distribution, are investigated. The profitability analysis is used to offer some hypotheses about the current structural crisis.
Keywords: profitability, technological change, income distribution, structural crisis.
The US and the global economy are in the grip of the most profound crisis since the Great Depression. The course of capitalist development has been punctuated by such deep structural crisis – the Long Depression in the 1880‟s, the Great Depression in the 1930‟s, the Stagflation of the seventies and the current crisis. Marxist analysis sees these recurrent crises as reflections of the inherentlycontradictory and turbulent nature of capitalist accumulation.1 The precise causal mechanisms underlying the present crisis remain subject to intense debate among Marxist scholars. This is not surprising. Despite a long engagement with the theory of crisis, Marxist scholarship has not developed a single, overarching “general theory” of capitalist crisis.
The structural crisis of the seventies had also engendered a rich debate on the root cause of the crisis. The “Monthly Review School” saw the crisis as a reflection of the tendency towards stagnation fostered by the dominance of monopoly. In the absence of external factors, the development of productive capacity outpaced internally generated demand (Baran and Sweezy 1966, Sweezy and Magdoff 1981). The “Profit Squeeze” explanation ascribed the eruption of crisis to the impact of rising wages in eroding profitability (Glyn and Sutcliffe 1972; Body and Crotty 1975). Within the Social Structures of Accumulation Theory, the crisis was seen as an outcome of declining labor productivity with a fall in the intensity of work (Bowles, Gordon and Weisskopf, 1987). In Brenner‟s account, the crisis was precipitated by intensification of competition, which squeezed profit margins and led to persistent overcapacity in manufacturing (Brenner, 2006). In contrast, while Shaikh (1987) explains the crisis of the seventies as stemming from a falling rate of profit due to a process of increasing capital intensity and labor saving technical change that is reflected in a rising “materialized composition of capital”. Moseley (1992, 2000) highlights the growth of the ratio of unproductive to productive labor as the main reason for declining profitability and stagnation.
While the explanations varied, these rival theories at least agreed on the nature of the empirical trend of falling profitability that marked the crisis of the seventies. A peculiar feature of the current debate is the absence of agreement on the basic question of the predominant trend in profitability leading up to the crisis. Given the centrality of the question of profitability to Marx‟s analysis of capitalist dynamics, a constructive evolution of the theoretical debate around the causal mechanisms engendering the current crisis would require some resolution of the empirical trends. This paper does not attempt to resolve the larger theoretical debates in the theory of crises; instead it seeks to clarify some of the empirical issues in the debate on the origins of the current crisis.
The rest of the paper is organized as follows. Section 2 offers a brief overview of the main competing accounts of the current crisis. Section 3 investigates and summarizes profitability trends; Section 4 presents results on profit rate decomposition in order to investigate the roles of technology and distribution as drivers of profitability2. This investigation offers some interesting insights into the different regimes of technological change in Postwar United States. Specifically it points to the significance of the sharp fall in capital productivity in the period preceding the crisis. Declining capital productivity is an important driver of declining profitability in Marx‟s analysis. This bias in the pattern of technical change has been explained as a response to the pressure of rising wages. The recent sharp decline in capital productivity is remarkable in that it occurs in the context of stagnant wages. The final section of the paper offers an account of this development in the context of the crisis.
Deepankar Basu* and Ramaa Vasudevan**
* Department of Economics, University of Massachusetts, Amherst; email: firstname.lastname@example.org
** Department of Economics, Colorado State University; email: Ramaa.Vasudevan@colostate.edu. Both of us would like to thank Duncan Foley and Thomas R. Michl for very helpful comments on an earlier draft of the paper. The usual disclaimers apply.